This was published 2 years ago
Data sharing: Super and insurance industries next
Financial apps aimed at encouraging customer switching are to expand into the insurance and superannuation industries, as the data-sharing regime moves into new territory.
For several years, banks have used a system called open banking, which allows consumers to provide permission to their bank to securely share their financial data with rivals, in the hope of getting a better deal on their loans.
The government says “open finance” will pave the way for a new wave of personal finance apps.Credit: Dominic Lorrimer
The policy, which also now covers energy companies and is being expanded to telcos, is intended to help address the problem that changing service providers can be time-consuming and complex, leading to widespread customer inaction.
Open banking launched in 2020, and even its supporters admit it had a slow start. Even so, last week the federal government announced plans to expand the “consumer data right” further, the next step being “open finance.”
The change means that as well as sharing banking data, consumers will eventually be able to share their data relating to insurance, superannuation, non-bank lending and merchant payments.
The government said expanding the system into these parts of the financial sector would spur “rapid product development that gives consumers access to better deals and a more complete view of their finances.”
Jane Hume, minister for superannuation, financial services and the digital economy, said it could mean budgeting apps are developed that provide services based on a consumer’s banking, energy and telco data, as well as insights on insurance and super.
“Open finance paves the way for the creation of new and innovative services, such as personal finance and life administration apps, to take the time, cost and complexity out of everyday tasks and big financial decisions for consumers,” Senator Hume said.
Open data is touted as a way of dealing with the so-called lazy tax that customers often pay when they stick with one service provider, rather than shopping around for a better deal. Switching providers usually results in cheaper prices, as companies often give new customers better deals to attract their business.
Fintechs, such as comparison website Finder, argue home and car insurance, in particular, is ripe for data-sharing. It pointed out last year that insurance is a high monthly cost, but shopping around is cumbersome because it generally requires you to manually provide the same information to each insurer.
Over time, it suggested a data-sharing regime could tap into information such as a consumer’s insurance claims history, how much their car is driven, and any history of demerit points.
Analysts at Morgan Stanley last week said open finance could be a risk to the profits of insurance industry leaders Suncorp and Insurance Australia Group, as it could make it easier for their customers to make comparisons and shop around. The broker also said open finance could eventually cause wealth managers and super funds to focus more on customer service, engagement and value.
However, the experience of open banking suggests these potential benefits are still a long way off.
It is still early days in the open banking experiment, and it is fair to say the regime has had limited impact so far.
Gareth Gumbley, founder open banking fintech Frollo, says it has been a slow start for the regime in Australia, with the past two years focused on getting systems in place to make data available.
However, he maintains we will soon start to see more practical uses of open banking, with several lenders to allow customers to apply for a mortgage using the system this year.
“I think we will see a move out of the crawl that we are seeing today into a gentle jog throughout 2022. And I think 2023 is when it will become mainstream,” Gumbley says.
As well as boosting competition, data-sharing can also be used by large incumbent firms to cross-sell a wider range of products – as is evident in Commonwealth Bank moving into energy retailing and telco, and energy giant AGL selling internet and mobile phone services.